Obviously, the current trade policy for the year
2003-04 has been evolved on the basis of the performance of the
economy during 2002-03 and of course keeping in view all the merits
and the de-merits of our trade regime. Being an emerging economy on
the world trade map, Pakistan however has come on the track for
tremendous growth in its trade volume in the years to come. Although
the trade policy 2003-04 sets an export target of $12.1 billion
whereas it fixes an import target at $12.8 billon there are some
optimistic feelings that instead of culminating into a trade deficit
of $700 million, the current financial year may produce a surprising
trade surplus when it matures in June this year.

The trade deficit in the previous financial year
was estimated at $1.6 billion mainly on account of higher imports of
oil estimated at $3.1 billion, which include import of POL products
$1.7 billion and crude oil $1.4 billion, chemicals $2.2 billion,
plastic material 423 million, iron and steel $400 million, fertilizer
$240 million, edible oil $580 million, textile machinery $525 million,
power generating machinery $263 million etc. The higher imports of
certain items like oil and textile, chemicals etc are likely to be
restricted effectively during the current year due to shift in
government policy from oil based system to natural gas and production
of certain chemicals within the country. If these assumptions for
restriction imports within limits and retaining the export performance
especially by the textile sector, it is hoped that the current
financial year may end at a happy note of trade surplus, said some
industrialists.

The targets projected in the policy are based on
assumptions that the exchange rate will remain stable during the
fiscal year. The appreciating rupee against US dollar has disproved
the assumptions that a subdued rupee is important for enhancing the
exports. In fact it is the quality of the products capable to respond
to the market needs, which matters for export promotion and not the
low exchange rate.

The trade regime especially the export sector
performed strongly last year where GDP ratio increased by 2 per cent
to 17 per cent. The robust growth in the textile exports resulted in
fetching $7.17 billion or 67 per cent of our total exports. It was the
textile sector which posted the largest increase of 24 per cent over
previous year. Within the textile sector, three categories i.e. bed
wear, woven garments and knitwear crossed $1 billion each for the
first time. Rice export also increased by 22 per cent including 39 per
cent increase in basmati exports. The increase of 63 per cent in the
export of POL products from Pakistan was another noticeable
development.

It is also hoped that there would be greater access
to export finance and the domestic and external environment will not
face any new challenges. In conformity to this policy, the State Bank
of Pakistan has further reduced the financial charges on the export
financing. Now exporters will get export finance from banks at three
per cent as the SBP has cut refinance rate by half percentage point to
1.5 per cent.

The State Bank of Pakistan (SBP) was also lending a
strong hand to provide a meaningful support to the export sector. In
this connection, the SBP has announced that it would give banks export
refinance at 1.5 per cent in August, adding that the banks would be
free to add a 1.5 per cent spread over it while pricing export
finances. Thus the eligible exporters would get export loans from
banks at three per cent in August. Till July they got export loans at
3.5 per cent as the SBP refinance rate stood at two per cent.

According to SBP announcement, the financing
facility under part B of the export finance scheme for financing
locally manufactured machinery shall also attract similar mark-up
structure meaning that three per cent interest would be charged on it
during August.

Export finance rate has fallen from eight per cent
in 2002 to three per cent during 2003 primarily because of the SBP
expansionary monetary policy which brought down the interest rates
considerably.

GLOBAL PERSPECTIVE

The trade policy 2003-04 been evolved in the back
drop of the global perspective and the economic conditions within the
country. Last year has been a frustrating year for global economic
recovery. After the significant downturn in late 2001, precipitated by
the 9/11 events and subsequent developments, the world economy was
showing signs of recovery during the first half of 2002. The optimism
for global economic recovery largely dissipated during the second half
of the year, owing to a series of adverse developments, unfolded on
the international economic scene. These developments included several
major corporate scandals and bankruptcies in the United States,
resulting in bursting of the equity market bubble, rising
uncertainties in the run-up to war in Iraq causing oil prices to the
rise sharply, and a recent outbreak of SARS virus, badly affecting
business environment in Asia. As a result, the world economic outlook
remained subdued, and global trade remained sluggish during fiscal
year 2002-03. Economic growth remained somewhat weaker in the major
growth poles of the world economy. Weaker outlook in the advanced
countries and higher oil prices have adversely affected the pace of
economic recovery in the developing countries.

The global situation is now showing signs of
improvement. Uncertainties surrounding the conflict in Iraq are
broadly resolved. There are expectations that global economic recovery
would gradually reassert itself, during the second half of the 2003.
Major growth poles of world economy are likely to perform better than
last year, and the growth outlook for developing countries appears
encouraging.

Pakistan is likely to benefit from a modest
recovery in the global economy, during the current fiscal year.

The new trade policy is based on the optimism
derived from our high export performance last year, in spite of the
adverse external factors. With the hard work and dedication of
exporting community and the consistent policies of the government,
Pakistan not only crossed the export target of $10.4 billion that had
eluded in the preceding years, but even surpassed the target reaching
a level of $11.3 billion for the first time in our history. In the
rapidly changing world trade scenario, Pakistan cannot be complacent
with our achievements. For sustaining the export growth rate, we have
to work still harder, using all our resources and exploiting our full
potential, to avail new opportunities and meet new challenges. The
trade policy initiatives have been taken considering both the national
compulsions and challenges of international trade environment.

Pakistan being the signatory to new multinational
trading system, envisaged in the WTO regime that was started in 1995,
and still mature fully from 2005. In particular, after the end of the
transitional period of ten years, all quantitative restrictions on
export and import of textiles and clothing will be eliminated from
January 1, 2005. This would have a profound impact on our predominant
textile sector, which contributes 67 per cent of our textile exports.

The high increase of 23 per cent in textile exports
last year, in all textile categories, gives us a degree of confidence
in facing the upcoming world competition in this sector.

Pakistan's domestic textile industries have
adequate protection against imports, which we have already liberalized
gradually in the past ten years. This liberalization of textile
imports has helped in improving our production efficiencies. To
neutralize the unfair competition from dumped and subsidized imports,
necessary legislations have already been put in place, in the form of
Anti-dumping, Countervailing and Safeguard Ordinances. Pakistan's
trade and industry now have to be ready for compliance with the WTO
agreement on Trade Related Intellectual Property Rights (TRIPS) in
this field, Pakistan has made substantial progress. The establishment
of Pakistan Intellectual Property Rights Organization is already
approved and necessary legislation will come soon so that it could
start functioning immediately. Legislation is already in place for
protection of Trade Marks, Patents and Industrial Designs. The
manufacturers will be henceforth needed to be very careful about
infringement of Intellectual Property Rights to avoid possible trade
sanctions against Pakistan.

For smooth operations in production and exports,
Pakistan has to ensure compliance with environment and social
standards, and adoption of security measures required by the choosey
customers. There are other health-related restrictions on export of
agricultural products under the WTO agreement on sanitary measures
which are already creating problems in sea food, fruits, vegetables,
rice and wheat. There is a need to be trade-effective and credible
measures, and adopt better standards and quarantine regulations, which
they can apply under the WTO agreement.

World trade is now dominated by regional trading
blocs like the EU, NAFTA, ASEAN, which give preferential treatment to
their members. Unfortunately, although such discriminatory treatment
cuts across the recognized MFN principles, these are allowed by the
WTO rules. Until a truly free multilateral trading system comes about,
we are also compelled to seek trade alliances, wherever we can, by
dint of our historical close relationships with a number of countries.

Like other WTO members, our services sector is also
being liberalized and opened up to foreign competition. This will
require Pakistani service providers to improve their efficiency and
provide quality service to the customers.

STRATEGY

The trade policy 2003-04 outlines the exports
strategy of which the main elements are; reducing cost of doing
business, increasing market access, technology and skills
up-gradation, Social, Environmental and security compliance,
encouraging export-oriented foreign investment, region-specific
strategy, country and business image building, capacity-building of
exporters, incentives to the exporters and value addition.

IMPORTS

Pakistan being a developing country is pursuing
policies directed towards rapid economic uplift of the country.

Accordingly, emphasis of imports trade regime has
been on stimulation and acceleration of industrial development with
special emphasis on export oriented, and high tech industrialization
as well as modernization of agriculture sector for creating employment
opportunities with the ultimate objective of achieving higher standard
of living for the people of Pakistan. The import trade regime
therefore aims at un-interrupted supply of adequate raw materials to
the industries; facilitating liberal import of machinery for
industrial development; availability of essential commodities for the
general consumers; providing a measure of competition to the informal
channel; facilitating inflow of latest technology into Pakistan; and
increasing efficiency of the domestic industry by gradually exposing
it to the international competition.

With the above objectives in view and in line with
the export strategy being pursued and also to meet the post 2004 WTO
era, and conclusion drawn from the trade performance during 2002-03,
the following decisions have been taken in consultation with the trade
and industry.

UP-GRADATION

An Up-gradation Fund will be managed under
public-private partnership. This Fund will finance the initiatives for
technological up-gradation, social, environmental and security
compliance, setting up combined effluent and waste water treatment
plants, hiring consultants, professional marketing companies abroad,
up-gradating industrial clusters, warehousing pakistani products
abroad, agriculture export processing zones, special export zones,
garments cities and brand acquisition, mechanism for operations of the
Fund will be developed by Ministry of Commerce. The estimated
financial requirement for the Up-gradation Fund from the government is
Rs3.74 billion. For technical management and export marketing,
consultancy services will be provided at the enterprise level on 50-50
cost sharing basis from the Up-gradation Fund. In the case of
declining sectors, like leather and carpets, contribution from Fund
may go up to 75 per cent.

JOINT VENTURES

Export Promotion Bureau will engage consultants to
identify advice and assist export enterprises for entering into joint
ventures with compatible joint venture partners in foreign countries
on 50-50 cost sharing of consultancy services out of the Up-gradation
Fund.

INDUSTRIAL CLUSTERS

For a number of export products, in which Pakistan
has or can create a competitive edge, the scheme of industrial
clusters has been eminently successful in cities where the production
of these goods is traditionally concentrated. In collaboration with
UNIDO, such clusters are already in operation, or being developed, in
Gujarat for electric Fans, in Wazirabad for cutlery, in Lahore for
woven garments, in Karachi for leather and leather garments, gems and
jewellery.

Five more clusters will be organized for sports
goods in Sialkot, for auto parts in Karachi, for electrical appliances
in Karachi and Lahore and for Knitwear also in Karachi and Lahore.
Infrastructure facilities will be provided for these cluster cities
and cluster products. These will include training facilities, testing
facilities, including laboratories, common bonded warehouses for raw
materials, accessories and components and combined marketing support
where feasible.

A Cluster Development Directorate will be
established in EPB, headed by DG (Supply) in Head Office and two
Directors (South and North) with sectoral clusters development agent
for purposes of coordination with local and international stake
holders. These agents from EPB will work in offices located centrally
in each cluster area with representatives of SMEDA, SSIC,
internationally a credited testing agencies, SME Bank and, where
available donor agency sponsored technical resource persons, to
provide one window service to enterprises for all infrastructure
facilities, including Banking, Communication, Water, Power and Gas.

GARMENT CITIES

In order to face the challenges of WTO rules based
on trade regime, particularly the elimination of quantitative
restrictions on international trade in textile and clothing following
the abolition of textile quotas from January 1, 2005, there is an
urgent need to enter into joint ventures with reputed foreign
companies, especially in the garment sector. Three garment cities in
Karachi, Lahore and Faisalabad will be established. These garment
cities will be owned and operated by corporate entities in which
government, multilateral institutions and the stakeholders would be
equity partners.

The Commercial Banks will be engaged to arrange
financing under the SBP prudential regulations at 6 months treasury
bills rate plus two per cent. These cities will be provided
infrastructure including sheds and will provide one window facility
for the SMEs. The SMEs would only be for value-added finished textile
products. These cities will serve as the trend setters.

TRADE DIPLOMACY

Commercial representatives abroad are vital to
effective export development and trade diplomacy. Regional Trade
Commissioners will be appointed for the six regions, namely, The
Americas, European Union, Africa, Far East, Middle East and Central
Asia. They will be guiding the country representatives in the
promotion of exports.

PRODUCTS-BRANDS

To promote export products, EPB will arrange to
hire through professional companies retail space in high-traffic
shopping malls in major commercial capitals of the world. Such space
will be made available to exporters, selected on a pre-determined
criteria agreed between the EPB and stakeholders of different products
on a 50-50 charge basis. Management of such space and retail sales
will be outsourced to reputed well established Retail Chain Store
companies.

Brand name is an important component in export
marketing and carries the respective image of product, quality and
business-related services. Branded products usually attract higher
price advantage. Established brand names in foreign markets are often
available for purchase or franchising. A new scheme will be launched
to enable exporters to acquire or franchise brand names. Support will
be provided to exporting companies for obtaining bank loans at 6
months Treasury Bills auction rate plus 2 per cent under the
prudential regulations of SBP.

FREIGHT SUBSIDY

The trade policy 2003-04 allows 25 per cent freight
subsidy on products whose total exports in any of the preceding three
years i.e. 1999-00 to 2001-02 were not more than $5 million, and for
all products exported to countries where our average annual exports in
the proceeding three years were not more than $10 million. The scheme
what the Minister for Commerce described has been instrumental in
product diversification and geographic expansion of exports. It is
worth mentioning here that that there is a number of export items
which have a great potential to increase volume of trade but they are
restricted mainly because of high rate of freight charges. For
example, Pakistan produces plenty of mangoes of different varieties;
however, the export of mangoes is one per cent of the total produce
because of freight charges. According to a market assessment, the cost
of mango at customs stage comes to around Rs15 per kg but the freight
charges on one kg are estimated at Rs75 which impairs the export
potential of this commodity. Same is the case of kinno which has also
great demand abroad but restricted exports due to high rate of freight
charges. Such exportable items need consideration if really want to
diversify our export regime.

EXPO PAKISTAN

An annual Mega Event will be held in Karachi Expo Centre, and Lahore Expo Centre (which is under development). In this
exposition all products of Pakistan with an export potential will be
put on display and export-related seminar would be held. This event
will be widely publicized. Selected foreign buyers, buying houses and
trade specialist media will be invited to the Expo as guests.

WTO AWARENESS

Priority needs to be accorded to educating the
manufacturers and exporters about WTO Trade Rules particularly about
full liberalization of international trade in textiles and clothing.
It has been decided that a WTO Directorate will be established at EPB
with a mandate to create awareness among the stakeholders and get feed
back from them on WTO related issues.

Under this awareness program, the Directorate will
enhance capability in the National Tariff Commission in the spheres of
Anti-dumping and Countervailing Duties and Safeguard Measures as well
as assisting stakeholders in filing their applications with NTC for
creating awareness about Intellectual Property Rights (IPRs).

The environment for enforcement of IPRs in Pakistan
is a source of concern to a number of trading partners and is a
serious disincentive for potential foreign investors. It is important
that the issue of IPRs is addressed urgently. Establishment of
Intellectual Property Rights Organization (PIPRO) is already approved.
There is a need to proceed with the required legislation so that PIPRO
could start functioning immediately.